Researchers from Florida Atlantic University and the University of Mississippi recently conducted a study that explores the relationship between block size, custodial security, and the price of Bitcoin. Their research suggests that blockchains with “full” blocks, especially when there is a transaction queue, provide an additional layer of protection against illicit activities such as money laundering and fraud.
The researchers focused on the Mt. Gox crash and other cases where cryptocurrencies were stolen from crypto exchanges. They hypothesized that perpetrators of illicit activities aim to complete their laundering transactions as quickly as possible. They theorized that when the block size is closer to its limit, there is a higher likelihood that the next transaction will be published on a later block rather than the most current one. Cybercriminals who breach crypto exchanges or close fraudulent ones want to launder the stolen Bitcoin rapidly.
To test their hypothesis, the researchers analyzed historical Bitcoin blockchain data and a scam report from a crypto exchange. They examined data from 2010 to 2021 and created a “fullness” score for blocks to assess their findings. Using this benchmark, they evaluated two specific metrics: the impact of block fullness on the price of Bitcoin and its deterrent effect on bad actors.
According to the paper, the team’s evaluation confirmed their hypothesis that “full Bitcoin blocks act as a deterrent to hackers and scammers because they signal congestion.” They also concluded that full blocks “also signal a rise in network security that is captured in price,” thereby supporting their second hypothesis that block fullness affects the price of Bitcoin.
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The study’s findings suggested that block fullness is 20% lower on the average day that experiences a cryptocurrency breach or fraud. This implies that full blocks contribute to higher network security and deter potential illicit activities in the blockchain.
The researchers’ findings have significant implications for the crypto industry. By understanding the relationship between block fullness, network security, and the price of Bitcoin, it becomes apparent that maintaining full blocks could help protect against nefarious actors. When blocks are full, it indicates that the network is congested, making it more challenging for perpetrators to execute their malicious activities.
Furthermore, the study highlights the importance of implementing robust security measures in crypto exchanges. It emphasizes the need for exchanges to prioritize custodial security to prevent breaches and protect users’ funds. By ensuring that exchanges have stringent security protocols in place, the risks of theft and fraud can be minimized.
The research also raises questions about the scalability of blockchains. As blocks become fuller, the network’s capacity to process transactions efficiently may be compromised. This issue has been a topic of debate in the crypto community, with discussions around block size limits and potential solutions, such as increasing block size or implementing off-chain scaling solutions.
Overall, the study provides valuable insights into the relationship between block size, network security, and the price of Bitcoin. It underscores the importance of maintaining full blocks to deter illicit activities and highlights the need for robust custodial security measures in crypto exchanges. As the crypto industry continues to evolve, research like this will contribute to the development of more secure and efficient blockchain systems. Additionally, it sparks further discussions about scalability and potential solutions to ensure the long-term viability of cryptocurrencies.
